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Tuesday, May 21, 2024 | Back issues
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High Court Weighs Taxes|on Medical Residents

WASHINGTON (CN) - The Supreme Court on Monday looked at whether medical residents can claim a student exemption to Social Security taxes.

The Mayo Foundation and the University of Minnesota filed a tax refund action in response to a 2005 Treasury Department regulation excluding medical residents from an exemption freeing students from paying Social Security taxes.

The district court overturned the regulation, but the 8th Circuit reversed, upholding the Treasury's regulation that said residents working full-time were not considered students under the exemption.

"How do you draw the line between a student who is working and a worker who is studying?" Justice Sonia Sotomayor asked Ted Olson, arguing for Mayo Foundation.

Olson said courts have determined the issue of whether someone is a student to be a question of fact, not law, and have used common sense to make the distinction.

"So why wouldn't common sense lead you to the conclusion that if someone is working 40 unsupervised hours without an attending physician at their side, taking care of patients, that that's really not a student?" Sotomayor asked.

Olson argued that the residents were supervised and said they were working in order to receive an education.

"These individuals cannot achieve what they need to achieve for board certification and hospital privileges except by having clinical experience," he said.

"Aren't we learning in every case that we're hearing?" Sotomayor asked. "It's, in my mind, difficult to separate out what makes or stops a person from learning on a job."

"Well, the justices of this court are exempt from Social Security taxes," Olson said.

Justice Ruth Bader Ginsburg asked whether all resident programs took place in schools, or if some were housed in other institutions.

"It would be unseemly, perhaps, to have residents who are not working at, quote, 'schools,' subject to the [Social Security] tax, and other residents whose training is approximately the same escape the tax," Ginsburg said.

"Well, that was a judgment that Congress made," Olson said.

When Ginsburg asked the same question of Assistant Solicitor General Matthew Roberts, arguing for the government, he said some resident programs are located in hospitals not operated by schools. If Mayo Foundation won the case, he said, it would lead to an "anomaly" in which residents in non-school hospitals would have to pay Social Security taxes and other residents would not.

Chief Justice John Roberts said the tax code was designed to avoid case-by-case litigation and asked why the court should not just defer to the IRS in determining whether someone was an employee or a student.

"The only way to draw the line is to have somebody say: This is going to be the line," Chief Justice Roberts said. "And if anybody is going to say it, it ought to be the IRS."

Olson said a government-adopted categorical exclusion against residents would be the same as saying, "If you are left-handed, you are not going to be covered by this student exemption."

Justice Stephen Breyer dug into the meaning of the Treasury's regulation, which states that the student exemption requires students' employment to be "incident" to their study.

Olson argued that all the work residents perform is incident to the educational process.

Breyer took out the dictionary, reading "incident" to mean "an accompanying minor occurrence" or "something arising or resulting from something else of greater or principal import." Breyer said the Treasury meant that when a student's work exceeded 40 hours per week, studying was no longer of greater or equal import.

"I submit that that makes no sense at all," Olson said. "The person is a student. They are just doing it long and arduously." He called the Treasury's rule "a classic definition of not only an arbitrary, but a capricious and irrational regulation" which stated that a student was a student so long as she was doing student-like things for less than 40 hours per week, "but if you do it a little bit too much, you are too much of a student, and therefore you are not a student."

Ginsburg asked, if Mayo Foundation won, whether residents considered students would lose the right to organize and collectively bargain or would no longer be covered by employment antidiscrimination laws.

Olson said no, that, "in all other respects, these resident are employees," calling the government's and other arguments "classic red herrings."

"You don't have to be either an employee or a student," Olson said. "In fact, you have to be both for this exemption to apply."

Justice Elena Kagan recused herself from the case due to her work as solicitor general.

The case is Mayo Foundation for Medical Education and Research v. United States, no. 09-837.

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